Not just phones anymore Bell Atlantic pins future on cable, cellular

September 05, 1993|By Ian Johnson | Ian Johnson,New York Bureau

New York -- Just last year it would have seemed improbable: Ray Smith, boss of Bell Atlantic Corp., hobnobbing with Francis Ford Coppola. Sure, Mr. Smith ran one of the nation's biggest companies, but he dealt in telephone switches and cables, not movies.

But a few months ago, after Bell Atlantic announced plans to send movies over the phone lines into America's living rooms, Mr. Smith got a flattering letter from the famous film director.

Mr. Coppola hailed the executive as a visionary for allowing artists to "speak directly" to their audiences. A few days later, Mr. Smith visited Mr. Coppola's New York apartment in the exclusive Pierre Hotel, where they chatted about cinema and wine.

Executives at Philadelphia-based Bell Atlantic are likely to mingle with Hollywood types more often, as the company transforms itself from a simple telephone business. A barrage of new projects reflects the company's aspiration to lead the fusion of cable, phone and cellular technologies. The result: replacing VCRs with huge libraries of videos that can be called up at the press of a button, and turning the phone into a Dick Tracy-style gadget that is as portable as a calculator.

"Of the Bell companies, they're the most technologically innovative and entrepreneurial. They've become real standouts," said Eli Noam, head of Columbia University's Institute for Tele-Information.

Bell Atlantic, which owns the Chesapeake & Potomac Telephone Co. of Maryland, is launching simultaneous broadsides against telephone behemoths such as AT&T and the cable television industry. If they find their mark, the salvos could make Bell Atlantic a leader in next-generation cellular technology and interactive home entertainment.

But such bold moves could leave Bell Atlantic the owner of an information highway that no one wants to use. And the multibillion-dollar effort could exhaust the company just as competitors assault its once-secure hold on local phone service in the mid-Atlantic.

"The question is not whether there will be new services," Mr. Smith said. "The question is whether anyone will make money on the new services. The answer to that is yes, but who and under what circumstances? That is the mind masher."

The telecommunications free-for-all has been sparked by a loosening of legal restrictions on AT&T and regional phone companies such as Bell Atlantic.

The regional companies were created after the 1984 breakup of AT&T, which held a monopoly over phone service. Bell Atlantic and the other Baby Bells were charged with providing local service; Ma Bell retained the long-distance franchise. Rigid barriers restricted the regional companies and their local subsidiaries from providing anything other than a cable infrastructure -- cable programming, for example, was taboo.

But new technologies such as cellular have blurred the lines separating the transmission of voice, data and pictures -- erasing the neat distinctions within the telecommunications industry. As legal barriers were challenged in court and in Congress, competition intensified. And new players such as long-distance companies MCI and Sprint, cable giant Tele-Communications Inc. and fast-growing McCaw Cellular Communications Inc. joined the fray.

The first battleground: cellular phone service.

Two years ago, when it acquired cellular phone company Metro Mobile CTS Inc. in a $1.65 billion deal, analysts fretted that Bell Atlantic had moved too slowly. While companies had been blanketing the nation with cellular phones for nearly a decade, Bell Atlantic was just becoming a big player.

The deal made Bell Atlantic the nation's fourth-largest supplier of cellular phone service. It also spread the company's reach into states such as Arizona and Texas -- far beyond its mid-Atlantic base of 18.2 million local subscribers in Delaware, Maryland, New Jersey, Pennsylvania, Virginia, West Virginia and Washington, D.C.

"Bell Atlantic did lag in its cellular strategy, but is now well positioned in the field," said Michael J. Balhoff, a telecommunications industry analyst with Legg Mason Wood Walker Inc.

Recently, Bell Atlantic has begun to push cellular technology in new directions. Last month, it joined with CellularVision of New York to develop wireless cable services, a technology that would combine the information available over cable systems with the portability of cellular telephones.

Cellular business has become a key to Bell Atlantic's growth. The company's cellular base of 840,000 customers is expected to grow 40 percent this year and its $800 million in revenues will rise 30 percent, says Larry Babbio, head of Bell Atlantic Enterprises International Inc.

But competition should get hotter. Last month, for example, AT&T made its belated -- but thundering -- entry into the business by agreeing to buy McCaw Cellular for $12.6 billion.

Such moves could threaten the regional Bells' stranglehold over local phone service.